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WHAT ARE SEPPS?

SEPPs allow you to take annual distributions from your retirement accounts before you reach age 59½ without incurring the 10% early-withdrawal penalty. However, these distributions are still taxed as ordinary income.

WHO SHOULD CONSIDER TAKING SEPPS?

These early distributions may be appropriate for people under age 59½ who separate from their employer’s service or for those who retire before 59½ and need to fill an income gap.1 Because complex regulations govern how SEPPs are calculated and how long you must take them, it’s important that you, your tax advisor and your Financial Advisor discuss whether taking them is the right distribution option for you.

WHAT SHOULD I CONSIDER BEFORE TAKING SEPPS?

Taking early withdrawals from your IRA or an employer-sponsored retirement plan is a serious step because it can affect the resources you’ll have available later in retirement. So before you begin, you should seek professional tax advice and ask yourself these questions:

n �How urgent is my current need for the money?

n �Are there other sources I could tap?

n �Am I comfortable trading retirement assets for a current cash stream?

n �Will I be able to pay the income tax I may owe on the payments?

n �Does my immediate need for money outweigh the requirement to take IRA distributions for a minimum of five years?

A STRATEGY FOR TAKING EARLY DISTRIBUTIONSWITHOUT INCURRING WITHDRAWAL PENALTIESWithdrawals from IRAs and employer-sponsored retirement plans before you reach age 59½ generally are subject to a 10% early-withdrawal penalty, in addition to any other taxes you may owe on the amount withdrawn.1 One way you can avoid the 10% penalty is by taking substantially equal periodic payments (SEPPs) from your retirement accounts, if you qualify. Your Financial Advisor has the tools, including our SEPP Calculator Analysis, that can help you determine whether taking SEPPs is the right strategy for you.2

Understanding Substantially Equal Periodic Payments

Amortization

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YOUR ANALYSIS WILL: 1. Incorporate Your Personal Financial Situation You provide key data, including the birth date for you and your beneficiary, the date distributions will begin, your account type and your account balance. 2. Calculate Your SEPPs The analysis calculates your payments for each of the three IRS-approved methods—fixed amortization, fixed annuitization and required minimum distribution—using the personal financial information you provided and certain calculator assumptions.

To learn more about the Substantially Equal Periodic Payments Calculator Analysis, contact your Financial Advisor.

Amortization

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REPORT SUMMARY

THE SUBSTANTIALLY EqUAL PERIODIC PAYmENTS CALCULATOR ANALYSIS

HOW CAN A SEPP ANALYSIS HELP YOU CHOOSE A CALCULATION mETHOD?

To help you determine which of the three IRS-approved calculation methods is appropriate for you, your Financial Advisor can run a free Substantially Equal Periodic Payments Calculator Analysis. The analysis generates a personalized printed report that includes projections of your SEPPs for each of the three methods (see the chart on the next page).3

WHAT ARE THE KEY RULES?

Payout restrictions

SEPPs must be taken annually for five years or until age 59½, whichever is longer. The SEPP scenarios below illustrate how this rule can affect how long SEPPs are taken.

Eligible tax-deferred accounts

n You can take SEPPs from a traditional IRA, a Roth IRA, a 403(a) annuity plan or a 403(b) annuity plan. You also can take SEPPs from qualified employer plans, such as a 401(k), but only after you separate from that employer’s service.

n You are not required to calculate SEPPs based on the aggregate amount of all your retirement accounts. Instead, you

may choose to calculate SEPPs based on the amount in a single account, which gives you more control of the distribution amount. You can set up multiple accounts for this purpose.

Terminating or modifying SEPPs before the deadline

If you terminate or modify your SEPPs before the deadline of five years or age 59½, whichever comes later, you must retroactively pay the 10% early-withdrawal penalty, plus interest, on all prior SEPP distributions.

Exceptions for terminating or modifying SEPPs

n You may terminate your SEPPs early due to disability or death, or when your account balance is depleted.

n If you are using one of the two fixed-payment calculation methods, you may make a one-time, penalty-free switch to the required minimum distribution method (see below for a description of these three methods).

Failure to use the IRS-approved methods for calculating SEPPs

n You may be subject to the 10% early-withdrawal penalty if you don’t use one of the three IRS-approved methods for calculating your SEPPs.

Example 1

Bob, age 50, has decided to take SEPPs from his IRA. Because he won’t turn 59½ for more than five years, he must take SEPPs annually for 9½ years until he reaches that age.

Example 2

Sally, age 57, has decided to take SEPPs from her 401(k). She must take SEPPs annually until age 62 because five years is longer than the 2½ years that must pass until she turns 59½.

SEPP SCENARIOS

HOW ARE SEPPS CALCULATED?

The three IRS-approved methods for calculating SEPPS include:

n �Fixed�amortization: The annual payment, which is fixed, is calculated in the first year and will not change in subsequent years.

The payment is calculated by amortizing your beginning account balance using an interest rate that does not exceed 120% of the federal midterm rate during either of the two months preceding your first payment and using one of the following life expectancy tables: the Uniform Lifetime Table, the Joint and Last Survivor Table or the Single Life Table (see IRS Publication 590).

n �Fixed�annuitization: The annual payment, which is fixed, is calculated in the first year and will not change in subsequent years.

The payment is calculated by dividing your beginning account balance by an annuity factor derived from an IRS mortality table (based on your life expectancy or the joint and last survivor life expectancy of you and your beneficiary) and an interest rate that does not exceed 120% of the

federal midterm rate during either of the two months preceding your first payment.

n �Required�minimum�distribution: The annual payment varies, must be calculated each year and generally is smaller than the payment calculated using the two fixed methods.

The payment is calculated each year by dividing the account balance in that year by the current year’s life expectancy factor applicable to you or to you and your beneficiary using one of the following life expectancy tables: the Uniform Lifetime Table, the Joint and Last Survivor Table or the Single Life Table (see IRS Publication 590).

HOW CAN YOU mONITOR YOUR SEPPS?

To track your distributions and make sure they are reported properly to the Internal Revenue Service, Merrill Lynch offers the SEPP distribution service. Ask your Financial Advisor how to enroll in this service.

PLEASE SEE THE CHART ON THE NExT PAGE FOR A COmPARISON OF THESE CALCULATION mETHODS.

For this hypothetical example, assume Bob, age 50, has a traditional IRA with a $100,000 balance at the beginning of year one and an 8% annual rate of return. Bob’s life expectancy is based on the IRS Single Life Table. In this example, Bob would receive the largest annual SEPP distribution using the fixed amortization calculation method.

Year 1 $6,668 $6,550 $2,924

Year 2 6,668 6,550 3,155

Year 3 6,668 6,550 3,416

Year 4 6,668 6,550 3,686

Year 5 6,668 6,550 3,977

Year 6 6,668 6,550 4,292

Year 7 6,668 6,550 4,631

Year 8 6,668 6,550 4,979

Year 9 6,668 6,550 5,372

Year 10 6,668 6,550 5,796

The amortization and annuitization methods in this example assume a 5.65% interest rate (the maximum interest rate based on the federal midterm rate in March 2007). The example assumes that distributions are taken on Dec. 31 each year. The distribution methods are outlined in Revenue Ruling 2002-62. This example is illustrative only and does not reflect the past or future performance of any specific investment.

COmPARING IRS-APPROvED SEPP CALCULATIONS

Fixed Amortization Fixed Annuitization Required Minimum Distribution

HOW CAN YOU GET STARTED?

If you are interested in taking annual distributions from your retirement accounts before you reach age 591/2 without incurring the 10% early-withdrawal penalty, ask your Merrill Lynch Financial Advisor to help you determine whether taking SEPPs is an appropriate strategy for you. Your Financial Advisor understands your situation, your needs and what you want to accomplish to bring you the right solutions at the right time for you. To learn more about Total MerrillSM and other Merrill Lynch services, visit www.askmerrill.ml.com.

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Total Merrill (design) is a registered service mark of Merrill Lynch & Co., Inc.

Total Merrill is a service mark of Merrill Lynch & Co., Inc.

© 2007 Merrill Lynch, Pierce, Fenner & Smith Incorporated. Printed in the U.S.A. Member, Securities Investor Protection Corporation (SIPC).

71103 Code 305304PM-0307

1 If you retire before age 59½ but after age 55, you may be eligible to withdraw assets from your employer-sponsored plan without having to pay the 10% penalty tax.

2 Before taking any distribution, you should discuss the ramifications with your tax advisor. Neither Merrill Lynch nor Merrill Lynch Financial Advisors provide tax or legal advice. It is important to consult your tax or legal advisors about your circumstances.

3 You should have your tax advisor review the calculator report before deciding to take SEPPs.

Any information presented about tax considerations affecting your financial transactions or arrangements is not intended as tax advice and cannot be relied on to avoid any tax penalties. Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. You should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with your personal professional advisors.